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Question: Jim has a home office. Jim is self-employed and files Schedule C (Form 1040), Profit or Loss From Business. The home is not a residential rental property. It is 3,100 square feet, and the home office portion is 450 square feet. He installed a new HVAC system in January of 2025, which cost $12,000 and serves the entire home, not just the office. Can a portion of the HVAC cost be deducted as a home office expense?

Answer: Yes, if Jim claims actual expenses for the home office instead of using the simplified method, Jim may deduct a portion of the HVAC system as part of their home office expense deduction.

Because the HVAC system benefits the entire home, it is considered an indirect expense. Indirect expenses are allocable to the home office using the square footage method (or other reasonable method). As provided above, 450 square feet of the home is used for the home office. The percentage of square feet allocated to the home office is 14.52 percent (450/3,100). The amount that can be allocated to the home office portion of the residence is $1,742. ($12,000 x 14.52%)

Generally, an HVAC system is a capital improvement that must be depreciated. Since the home is not used as a rental, but for personal and business purposes, Jim may depreciate this cost over 39 years as nonresidential real property. Thus, Jim may claim a depreciation deduction of $43 in 2025 (year one) ($1,742 x 2.461%) and $45 ($1,742 x 2.564%) in each subsequent year on Form 8829, Expenses for Business Use of Your Home. Section 179 expense is allowed for an HVAC system (as it is qualified real property), if the business use is more than 50%. The business use is only 14.52%, so it does not qualify for Section 179.